Single Family Rentals versus Multi-family Rentals

[David Krulac]

In my county of 240,000 people there are currently 1,342 SFH and 52 MF (2 or more units) listed for sale. So there are many more choices of properties to purchase in the SFH category.

I have both SFH and MF, but also prefer singles. I would add a few more reasons:

1.  House tenants pay more utilities like water, sewer and trash than apt. tenants.  And take care of more maintenance like cutting the grass, shoveling the snow, we just had another snow yesterday, seems like there has been snow on the ground for months.

2. House tenants bring more of their own appliances. I usually supply range only in SFH but frig and sometimes washer & dryer in Apts. Less appliances mean less repair and replacement costs. I'm not in the appliance business.

3. Tenants do tend to stay longer, and vacancy is probably the most overlooked costs in being a LL. I also think that the more things a tenant brings like heavy appliances, baby grand pianos etc, the longer they stay because they don’t want to lug that stuff around.  I have some tenants for a decade or more.

4. When you go to sell the likely buyer will be an owner occupant. They will buy the house based on sales comps and not cap rate. In other words they will be buying at a retail price. Most won't have a clue even what a cap rate is. I can only recall once that I sold a SFH to an investor, all the other sales were to owner occupants in the retail market space. The houses that I'm buying are for the most part in owner occupant neighborhoods.

5. The last SFH I bought costs $34,000, last sale was $95,000 and is 1,800 sq ft and rents for $1,250.

6. Recently a commercial property sold here for $5 million, cash in like 20 days. Guess what the cap rate was? 5%

[Neil Schoepp]

@David Krulac thanks for starting this post. I am fairly new to REI my big picture goals lean toward the MF 5+ units. I lean this way primarily because I can for the most part control the value through up keep and income. If I keep a nice updated building that commands a top rent then the value will be what it is. The investor coming in won't have much to negotiate with. So my exit strategy is more in tune with a turn key operation. Everything will be up and running when it's purchased. I of course am looking for that distress property that has a 20% occupancy with utilities that can be separated out.

Please pick apart my example for its flaws. I'm here to learn not get upset.

Yes vacancies can be a factor but in MF I shouldn't need a 100% occupancy to cash flow. If a tenant leaves a SFR I am paying that mortgage myself. If a tenant leaves a MF I feel it in my bottom line but the property should still be covering the mortgage. Another reason I like Tri and quad plexus over duplexes.

Another reason to go MF is I only have to drive to one location as opposed to all around town.